Treasury Borrowing Advisory Committee

Treasury Borrowing Advisory Committee
Charge: What are the implications of the current abundant reserve
environment for Treasury issuance? Are there significant differences
between the current abundant reserve environment compared to previous
periods of abundant reserves that Treasury should consider? How does an
abundant reserve environment affect private demand for Treasuries at
different maturities?

February 2, 2021

Executive Summary

 Large scale asset purchases (LSAPs) by the Fed, and in turn reserve creation, have contributed to a
 favorable backdrop for Treasury issuance

 Reserves are projected to increase sharply in 2021 driven by the continuation of the LSAPs and reduction
 in the Treasury General Account (TGA) balance

 Reserve creation leads to deposit growth in the banking system which, in turn, leads to increased bank
 demand for Treasuries

 The current period of reserve creation is resulting in a build-up of excess liquidity on bank balance sheets;
 it also coincides with a period of historically low yields and credit spreads

 We project sharp increases in bank securities purchases with a significant portion in short to intermediate
 Treasuries

 Reserve growth should also be supportive of non-bank private sector demand for Treasuries

 Notably, continued growth in reserves is likely to bolster money market fund balances and lead to
 increased demand for T-bills

 However, continued growth in reserves negatively impacts Tier 1 Leverage, SLR, and GSIB surcharge
 calculations and could constrain bank balance sheet capacity for repo and Treasury inventory

 2

Reserve balances at the Fed are set to increase sharply over the
next two years
 Continued asset purchases by the Fed will $ tn Fed’s Balance Sheet
 lead to significant additional growth in reserve 10

 balances 8

 The Treasury General Account (TGA) is likely 6

 to decline from its current elevated level and 4
 will result in an increase in reserve balances 2

 Historically the TGA balance has been much 0

 smaller and we assume that it reverts to $800
 bn by the end of 2021 as suggested by LSAP LSAP LSAP
 Tapering
 LSAP
 #1 #2 #3 #4
 previous Treasury borrowing estimate Fed's Total Assets
 announcements Reserves from Depository Institutions

 Projected Federal Reserve Balance Sheet
 LSAPs are projected to continue at current Year-over-Year Change
 pace in 2021 before tapering in 2022 Actual
 Levels
 Median
 25th
 Percentile
 75th
 Percentile
 $bn 2019 2020 2021 2022 2021 2022 2021 2022
 Finally, we assume currency grows at the rate Total Assets 4,214 7,411 1,441 618 1,191 203 1,442 925
 Treasury 2,329 4,689 960 465 823 180 960 623
 of nominal GDP in 2021 and 2022 MBS 1,420 2,039 481 153 368 23 482 302
 Other 465 683
 In the median scenario, we project reserve Total Liabilities 4,214 7,411 1,441 618 1,191 203 1,442 925
 Currency 1,802 2,087 129 122 129 122 129 122
 balances to increase by over $2.1 tn in TGA 352 1,614 (814) -814 (814)
 Other 411 568
 2021 and by about $500 bn in 2022 Reserve Balance 1,648 3,143 2,125 496 1,875 81 2,126 803
 Asset Growth: Based on Federal Reserve Bank of New York’s Survey of Primary Dealers
 TGA: Shrinks to $800bn per Treasury guidance
 Currency growth: Follows Bloomberg Economist Survey Nominal GDP growth of 6.2% in
 2021 and 5.5% in 2022
Sources: Federal Reserve (H.4.1), Federal Reserve Bank of New York’s Survey of Primary Dealers, Bloomberg Economist Survey (top chart and bottom table)

 3

Reserve creation by the Fed has contributed to a significant
increase in deposits in the banking system
 Large scale asset purchases (LSAPs) by the Fed are US Commercial Banks Deposits Versus Loans,
 funded by creating reserves $bn Excess Reserves and Treasury Securities
 18,000

 When the Fed purchases a security from a non-bank 16,000
 14,000
 private sector entity it results in the creation of a bank
 12,000
 deposit
 10,000

 When banks make loans or purchase Treasuries it also 8,000

 results in the creation of bank deposits; deploying 6,000

 reserves into loans or Treasuries has a multiplier effect 4,000

 on deposit creation 2,000
 0
 Past periods of reserve creation have resulted in large
 increases in bank deposits
 Loans Excess Reserves Treasury Securities Deposits
 Until 2007, deposits in the banking system had
 increased in line with loans. Since the inception of
 LSAPs, deposit growth has consistently and Projected Reserve Increases Lead to Deposit Growth
 significantly outpaced the rate of loan growth Year-over-Year Change
 Actual 25th 75th
 Median
 Furthermore, these deposits in recent years have $bn
 Levels
 2019 2020
 Percentile Percentile
 2021 2022 2021 2022 2021 2022
 tended to be sticky and have largely stayed in the
 banking system Federal Reserve Balance Sheet
 Reserve Balance 1,648 3,143 2,125 496 1,875 81 2,126 803
 In the median scenario, we project about $2.6 tn of US Commercial Bank Balance Sheets
 increases in deposits in the US banking system Deposits 13,350 16,238 2,125 496 1,875 81 2,126 803
 * Beta of 1 used. Refer to Appendix for regression analysis supporting relationship

Sources: Federal Reserve (H.3, H.4.1, H.6, H.8) (top chart and bottom table)

 4

Rapid deposit growth in the banking system is likely to create
demand for duration
 Bank deposits are liabilities and typically add negative Median US GSIB Deposit Cost versus Fed
 duration to the balance sheet % Funds Target Rate
 3.0

 Banks typically hedge the duration risk associated 2.5
 with deposits by buying/originating fixed rate assets 2.0
 or via the use of derivatives 1.5
 1.0
 Deposits created in a period of increasing reserves
 0.5
 tend to be large institutional deposits (“non-core”);
 these deposits tend to exhibit higher run-off rates and 0.0

 greater re-pricing sensitivity to rate changes than
 traditional retail deposits and hence have a shorter
 Deposit Cost Fed Funds Target Rate
 duration

 There are significant differences in modeled duration
 for different deposit cohorts; traditional retail deposits Projected 3-year Equivalents Demand ($bn)
 durations range from 3 to 7-years while “non-core”
 deposit durations are about 2-years Deposit Median 25th Percentile 75th Percentile
 Duration (2021 & 2022) (2021 & 2022) (2021 & 2022)

 Estimates of deposit duration vary significantly across 1 years 880 656 983
 banking institutions and therefore we estimate 2 years 1,759 1,313 1,965
 demand under different duration assumptions
 3 years 2,639 1,969 2,948

 Using a 2-year duration estimate, we project * 3-year duration = 2.98

 demand of $1.3 to $2.0 tn in 3-year equivalents

Sources: SNL and Bloomberg (top chart). US GSIBs include BAC, BK, C, GS, JPM, MS, STT, WFC

 5

Key differences in this current abundant reserve period relative to
prior periods
 During past LSAPs, banks were in the process of Reported and Estimated Uncapped LCR* versus
 % Excess Reserves $ bn
 building HQLA to comply with new liquidity 150 3,500
 regulations; higher reserves at the Fed played a 3,000
 140
 significant part in banks’ ability to meet these 2,500
 requirements 130 2,000

 120 1,500
 The current period of reserve creation is resulting in 1,000
 a build-up of excess liquidity providing banks 110
 500
 flexibility to deploy the cash reserves into higher 100 0
 yielding assets

 The total amount of excess liquidity is understated Estimated Uncapped LCR (LHS) Reported LCR (LHS)
 Excess Reserves (RHS)
 in reported holding company LCR due to * Uncapped LCR is estimated by adding the quarterly change in estimated bank HQLA from
 transferability rules between holding company and call reports to the 2019Q3 BHC Reported HQLA divided by the BHC Reported NCOs. More
 details can be found in the Appendix
 bank subsidiaries which caps the LCR benefit of
 excess liquidity held at the bank
 Average Term Premium and JULI Spread in Reserve Periods
 We estimate that bank HQLA has grown $1.2 tn 10Y ACM Term JULI Spread to
 since 2019Q3 which equates to an “uncapped” LCR Premium (%) Treasury (bps)
 of 144% highlighting the amount of liquidity
 9/30/2008 – 12/31/2011 2.21 255
 available to banks
 1/31/2012 – 8/31/2014 1.14 163
 The current period of reserve creation coincides
 with historically low term and credit risk premiums
 10/31/2019 – 12/31/2020 (0.66) 175

Sources: Bank LCR Disclosures and SNL (top chart), Bloomberg and JP Morgan (bottom table)

 6

Tepid loan growth and asset sensitive balance sheets will likely
require banks increase securities portfolios
 Loan growth has historically been slow in the %
 10
 US Commercial Bank Annual Loan Growth

 first couple of years of an economic recovery
 8

 We expect loan growth to be tepid in 2021 6

 and loan balances to increase only modestly 4

 2
 Slow loan growth would further support bank 0
 1 2 3 4 5 6
 demand for securities given the lack of Years after end of NBER defined Recession
 investment opportunities and amount of Average of Past 3 Recoveries

 excess liquidity
 US GSIB Weighted Average NII Sensitivity:
 % Change over the Next 12 Months
 Record low interest rates combined with 2020Q3 2017Q4 2007Q4 2006Q4 2005Q4
 strong deposit growth has resulted in bank Instantaneous +100 bps 13.4 5.7 -1.7 -2.8 -0.8
 balance sheets becoming very asset Gradual +100 bps 12.2 3.3 -1.0 -1.2 -0.4
 Gradual +200 bps 16.1 2.9 3.6 NA NA
 sensitive and creating demand for duration
 US GSIB Holdings of US Treasury & Government Agencies:
 Banks have historically owned Treasuries in Contractual Maturity Distribution (% of Carrying Value)
 the short-to-intermediate part of the curve; >1 Year; >5 Years; Estimated

We expect banks to increase securities purchases in 2021 which
could be an important source of demand for Treasuries
 Banks have accelerated the pace at which they
 US Commercial Banks Annual Change in Bank
 added securities in 2020, but cash reserves are still at $bn Reserves, Securities and Deposits
 3,500
 record levels and expected to grow sharply in 2021
 3,000
 and 2022 2,500
 2,000
 We expect steady growth in banks’ securities 1,500
 portfolios with accelerated purchases if rates rise 1,000
 500
 Overall, we project incremental bank demand for fixed 0
 income assets to increase by about $1.8 tn over the -500
 next two years -1,000

 Given historically tight credit spreads, we expect Excess Reserves Securities Deposits
 private label securities to remain a small portion of
 these securities purchases Bank HQLA/Securities Matrix

 With low term premiums and yield levels, and given Asset Type
 Liquidity/
 HQLA
 Duration Yield/Income
 banks’ preferred habitat, we expect most of the
 Central Bank Balances Highest Zero Low
 incremental bank demand for duration to
 materialize in short and intermediate Treasuries T-bills/Reverse Repos Very High Very Low Low

 Treasury asset swaps High Zero Low/Medium
 Balance sheet flexibility may also provide increased
 demand for short-dated Treasuries and Treasury T-notes High Low/Medium/High Low/Medium

 asset swaps which will help keep swap spreads Agency MBS High Medium Medium
 stable despite significant expected increases in net
 Private Label Low Medium Medium
 issuance

Sources: Federal Reserve (H.3, H.6, H.8) (top chart)

 8

Reserve growth is also consistent with increased non-bank private
demand
 Non-bank private demand for Treasuries is affected % ACM 10Y Treasury Term Premium
 by LSAPs, which are the mechanism that drives 4.0
 3.5
 reserve creation. Money manager portfolios are 3.0
 liquefied by selling Treasury holdings to the Fed, 2.5
 and they may seek to redeploy those available 2.0
 funds into Treasuries or other fixed income sectors 1.5
 1.0
 0.5
 While multi-asset managers can reallocate LSAP 0.0
 proceeds to a wider range of assets, government -0.5
 bond portfolio managers, including passive index -1.0
 -1.5
 funds, will likely reinvest across the Treasury curve
 due to their investment criteria

 This persistent demand, and the increased interest
 10Yr US Treasury Yield Minus 6 Month Forward
 in purchasing Treasuries if yields move higher, % Fed Funds Rate
 could be contributing to the low level of the term 4.0
 3.5
 premium. The term premium often increases during
 3.0
 a recession and early into an economic recovery,
 2.5
 but it has remained well below historical norms
 2.0
 despite heavy increases in the issuance calendar
 1.5
 1.0
 The abundant reserves environment may be 0.5
 helping to keep term premiums low despite 0.0
 heavy issuance 0 4 8 12 16 20 24 28 32 36 40 44 48
 Months after becoming accommodative
 Early '90s Early 2000's Great Recession Current

Sources: Federal Reserve Bank of New York (top chart), Bloomberg, JP Morgan, Federal Reserve Bank of New York (bottom chart). Policy is defined as accommodative when the 6M Forward Fed Funds Rate minus Core PCE
Inflation is less than the Laubach-Williams One-sided Estimate of the Natural Rate of Interest

 9

A rising reserve environment bolsters growth in money market funds,
leading to increased T-bill demand
  In a period of rapid reserve growth, some of the banking system liquidity is likely to migrate to money market fund
 (MMF) balances as depositors / cash managers diversify their short-term liquidity portfolios

  Money market fund investments must remain on the short end of the curve, and in recent years most of the asset
 growth has come in T-bills

  Government and Prime MMF’s allocation to T-bills has increased to more than 50%. MMFs now own ~40% of T-bills
 outstanding, up from 15% a few years ago

  Increased flows to MMFs and their increased allocation to T-bills has driven T-bill yields lower

  Potential negative T-bill yields driven by an increase in demand could create challenges for MMFs from a business
 model perspective

 MMF Growth by Category % Government MMF Holdings %
 $bn $ tn 100 3.0
 6 3.50
 90
 2.5
 5 3.00 80
 70 2.0
 2.50
 4
 60 1.5
 2.00
 3 50
 1.50 40 1.0
 2 30 0.5
 1.00
 20
 1 0.50 0.0
 10
 0 - 0 -0.5

 Prime (LHS) Government (LHS) Reserves (RHS) U.S. Treasuries (LHS) U.S. Agencies (LHS)
 U.S. Treasury repo (LHS) U.S. Agency repo (LHS)
 Other assets (LHS) 3-Mo T-Bill Yield (RHS)
 3M OIS (RHS)

Sources: Office of Financial Research and Factors Affecting Reserve Balances - H.4.1 (left chart), Federal Reserve Money Market Funds: Investment Holdings Detail and Bloomberg (right chart)

 10

Abundant reserves and deposits support repo financing of growing
Treasury supply, given current bank balance sheet capacity

  Current deposit and repo market capacity reliably
 % SOFR Rate - IOER
 supports financing needs across US Treasury 3.5
 ownership sectors 3.0
 2.5
  Short-term disruption in repo market was initially 2.0
 1.5
 supported by the Federal Reserve’s 3/12/20 1.0
 announcement of asset purchases and term repo 0.5
 operations to address temporary market 0.0
 disruptions. The subsequent LSAPs ultimately -0.5

 increased bank liquidity creating capacity for repo
 and Treasury purchases

 Ownership of US Treasury Securities $ tn Reverse Repo and Deposits $ tn
 $ tn
 30 2.2 16.0

 25 2.0 15.0
 20 1.8
 14.0
 15 1.6
 13.0
 10 1.4
 1.2 12.0
 5
 0 1.0 11.0

 Depositary Institutions Mutual Funds Reverse Repo (LHS) Deposits (RHS)
 Federal Reserve and Government accounts Foreign and International
 Other 1

1) Other Includes individuals, GSE, brokers and dealers, bank personal trusts and estates, businesses, pension funds, insurance companies, US saving bonds, state and local governments and other investors.
Sources: Bloomberg (top right), Federal Reserve Bank of New York, Research and Statistics Group, “Quarterly Trends for Consolidated U.S. Banking Organizations” (bottom right). Treasury Bulletin (bottom left)

 11

Increased reserves are putting pressure on bank capital ratios which
could reduce capacity for deposits and repos in the future
 Temporary exclusion of US Treasuries and deposits at Federal  Excluding US Treasuries and deposits at Federal
 Reserve Banks from SLR calculations is scheduled to expire on Reserve Banks would have improved the
 March 31st Leverage ratio by approx. ~ 80 bps in Q3 2020
 Without this, SLR ratios are expected to drop by ~ 60 bps in Q3
 2020 despite capital growth from curtailment of buybacks
 % Leverage Ratio
 % SLR 13
 11
 12
 10 11
 9 10
 8 9
 7 8
 7
 6
 6
 5 5
 4 4

 Weighted Average Average without Exclusions Weighted Average Average if SLR exclusions existed

  G-SIB Surcharge impact driven by reserve and related  Reserves were significantly lower when capital rules and
 deposit growth surcharges were calibrated.
 Potential to
 G-SIB Bank Q3 2020
 increase in 2022  If SLR, Tier 1 Leverage, and CET1 capital ratio
 JP Morgan Chase 3.50%  requirements become binding driven by reserve growth,
 Citigroup 3.00%  banks will be required to issue debt and/or retain higher
 BNY Mellon 1.50% 
 equity to maintain regulatory compliance.
 Morgan Stanley 3.00%   As a result, balance sheet availability for deposit growth
 Goldman Sachs 2.50%  and repo financing becomes increasingly expensive
 Bank of America 2.50% 
 Wells Fargo 2.00% 
  We expect these costs would be passed on to depositors
 State Street 1.00% 
 and repo counterparts

Sources: SNL- sample includes 5 largest Money Centers, 3 largest Custody Banks and 12 Regional Banks (top right and left charts), Barclays Research (bottom left table)

 12

Conclusions

 Reserve balances at the Fed, which are already historically high, are likely to grow sharply
 over the next two years

 The abundant reserves contribute to a favorable environment to absorb Treasury issuance

 Reserve creation is likely to drive strong bank demand for Treasuries

 We expect most of the bank demand to materialize in the short and intermediate part of the
 curve

 Abundant reserve balances have led to growth in money market funds and in turn
 increased demand for T-bills

 A sharp reduction in TGA balances accompanied by a reduction in T-bill issuance may
 result in lower T-bill yields

 Continued growth in reserves may constrain bank balance sheet capacity as leverage and
 capital ratios approach regulatory minima

 13

Appendix

 14

Bank guidance and commentary indicates caution on incremental
investment risk
  In the Sep 2020, Senior Financial Officer Survey1, which aggregates responses of 80 banks representing
 75% of total reserve balances. Referring to the elevated levels of reserves during Q2 2020, Bank officials
 noted:
 − Banks hold high reserve balances to be prepared for potential drawdowns on committed credit lines or a desire to conduct
 asset/liability matching, given a large inflow of deposits with potentially high runoff rates or both
 − Second most important driver of reserve accumulation is a lack of attractive alternative investment opportunities
 − Domestic survey respondents expect a decrease in their reserve levels relative to August 2020 citing: Concerns over Net
 Interest Margin, increase in the expected return on alternative HQLA vs IOER
 − Actions cited to reduce reserves: On the asset side, increase securities portfolio, both non-HQLA and HQLA. On the
 liabilities side, allow wholesale funding to mature without replacing it.

  During Q4 2020 Earnings2 Bank executives commented on how they expect to deploy liquidity:
 − Referring to excess liquidity, JP Morgan said “the theme is we're being opportunistic but patient […] And as we think about
 managing the balance sheet, it's not just about NII. Of course, it's about capital. And so, there is risk in adding duration at
 these levels in a further sell-off. So, we're being very patient.”
 − Citigroup said “We intend to continue to grow as it relates to increasing those deposits. And we've been smart about how
 we've been managing our liquidity, keeping some liquidity obviously there for lending needs [..] but also paying down
 wholesale debt. We did that through the year and also investing”
 − State Street said “We will be opportunistic from here, regarding the deployment of cash and the expansion of our
 investment portfolio, but we also need to be mindful of currently tight credit spreads and the potential for OCI risk from
 interest rate changes”
 − Bank of America said “the balance sheet expanded $81 billion versus Q3 to $2.8 trillion in total assets. The main point is
 that deposits are driving and funding substantially all of this growth. Deposits grew $93 billion in the quarter and are up
 $361 billion from Q4 '19. On the other hand, loans declined from Q3, with deposits up loans down excess liquidity is piling
 up in our cash and securities portfolios”
1) https://www.federalreserve.gov/data/sfos/files/senior-financial-officer-survey-202009.pdf
2) Transcripts sourced from Bloomberg

 15

Balance Sheet of Commercial Banks in the United States
 Federal Reserve Balance Sheet ($bn) 2000 2005 2007 2009 2012 2014 2017 2018 2019 2020 13yr chg 1yr chg
 Excess Reserves 1 2 2 1,075 1,459 2,524 2,121 1,568 1,491 3,135 3,133 1,644

 Assets and Liabilities of Commercial Banks in the United States ($bn)
 Total Assets 6,136 8,814 10,883 11,776 13,140 15,050 16,789 17,050 17,856 20,648 9,765 2,793
 Cash incl. Central Bank Balances 306 336 325 1,233 1,696 2,797 2,407 1,916 1,784 3,228 2,903 1,443
 Securities 1,183 1,840 2,090 2,324 2,743 2,944 3,447 3,509 3,842 4,715 2,625 873
 Treasury & Agency Securities 790 1,144 1,128 1,448 1,879 2,050 2,535 2,677 3,014 3,750 2,622 736
 MBS 1,006 1,347 1,403 1,822 1,878 2,084 2,529 2,529 446
 Non-MBS 442 532 647 713 799 930 1,220 1,220 290
 Other Securities 393 695 962 876 864 894 912 832 828 965 3 137
 Loans 3,710 5,232 6,493 6,482 6,932 7,644 9,150 9,623 10,080 10,417 3,924 338
 Other Assets 938 1,406 1,975 1,737 1,769 1,664 1,785 2,002 2,150 2,289 313 138
 Total Liabilities 5,613 7,929 9,753 10,465 11,638 13,428 14,941 15,159 15,879 18,665 8,912 2,786
 Deposits 3,764 5,625 6,720 7,758 9,335 10,550 12,074 12,517 13,350 16,238 9,517 2,888
 Borrowings 1,186 1,635 2,122 1,893 1,535 1,757 2,081 1,946 1,967 1,688 (435) (279)
 Other Liabilities 664 669 910 814 767 1,121 787 697 562 739 (171) 178
 Equity 523 884 1,130 1,311 1,502 1,621 1,848 1,890 1,977 1,984 853 7

 HQLA Eligible Assets* 1,096 1,480 1,453 2,680 3,575 4,847 4,943 4,593 4,798 6,977 5,524 2,179
 Deposits – Loans 54 393 227 1,275 2,403 2,905 2,924 2,894 3,271 5,820 5,593 2,550
 Deposits – Loans – Treasury** 833 1,871 2,258 2,211 2,095 2,341 4,600 2,259

 Nominal GDP*** 10,439 13,332 14,682 14,628 16,359 17,850 19,938 20,910 21,747 21,157 6,476 (590)

 Ratios (%)
 Loans/Deposits 98.6% 93.0% 96.6% 83.6% 74.3% 72.5% 75.8% 76.9% 75.5% 64.2% -32.5% -11.3%
 Cash/Total Assets 5.0% 3.8% 3.0% 10.5% 12.9% 18.6% 14.3% 11.2% 10.0% 15.6% 12.6% 5.6%
 Treasury+Agency/Total Assets 12.9% 13.0% 10.4% 12.3% 14.3% 13.6% 15.1% 15.7% 16.9% 18.2% 7.8% 1.3%
 Treasury/Total Assets 3.8% 4.0% 4.3% 4.2% 4.7% 5.2% 5.9% 5.9% 0.7%
 Treasury+Agency/Total Securities 66.8% 62.2% 54.0% 62.3% 68.5% 69.6% 73.6% 76.3% 78.5% 79.5% 25.6% 1.1%
 Treasury/Total Securities 19.0% 19.4% 22.0% 20.7% 22.8% 24.2% 25.9% 25.9% 1.7%
 *** HQLA Eligible Assets include Cash and Treasury and Agency Securities
 *** Non-MBS Treasury and Agency Securities used as proxy for Treasury Securities
 *** GDP is only updated through 2020Q3

Sources: Federal Reserve (H.3, H.6, H.8)

 16

Structural liquidity increased with reserves despite stable reported
LCR
 Reported holding company HQLA has ($bn) 2019Q3 2019Q4 2020Q1 2020Q2 2020Q3 Change

 increased significantly less than reserves Federal Reserves 1,427 1,648 2,348 2,938 2,743 1,316

 due to transferability rules between holding Reported BHC HQLA 2,582 2,648 2,711 3,068 3,157 575
 company and bank subsidiaries Reported BHC NCO 2,179 2,231 2,282 2,522 2,598 419
 Reported BHC LCR (%) 118.5 118.7 118.8 121.6 121.5 3.0
 − Excess liquidity in bank subsidiaries Reported BHC Liquidity Surplus 403 417 429 546 559 156
 above their standalone LCR requirement Estimated Bank HQLA* 2,492 2,555 3,128 3,531 3,651 1,159
 are excluded from the holding company QoQ Change 64 572 403 119
 HQLA per LCR rules Estimated Uncapped HQLA** 2,582 2,646 3,218 3,621 3,741 1,159
 Reported BHC NCO 2,179 2,231 2,282 2,522 2,598 419
 This has resulted in a large amount of Estimated Uncapped LCR (%) 118.5 118.6 141.0 143.6 144.0 25.5
 “capped” liquidity in bank subsidiaries Uncapped Liquidity Surplus 403 414 936 1,100 1,143 740
 ** Estimated using Federal Reserve Balance, Balance due from Foreign Banks, US Treasury and
 leading to the reported LCR understating the Agency MBS from Call Report. Does not include Foreign Gov’t securities or impact of pledges
 total amount of liquidity ** Estimated by applying quarterly change in Estimated Bank HQLA to 2019Q3 Reported HQLA

 HQLA eligible assets on bank subsidiary %
 Reported and Estimated Uncapped LCR versus Excess
 $ bn
 Reserves
 balance sheets are estimated to have grown 150 3,500
 by $1.2 tn between 2019Q3 and 2020Q3, in 140
 3,000
 line with the growth in reserves 2,500
 130 2,000
 We estimate that the “uncapped” HQLA has 120 1,500
 grown in line with bank HQLA eligible assets 1,000
 110
 and reserves. The “uncapped” LCR is 500
 estimated at 144% highlighting the total 100 0
 amount of liquidity available to banks
 Reported LCR (LHS) Estimated Uncapped LCR (LHS)
 Excess Reserves (RHS)
Sources: SNL, Federal Reserve (H.3, H.6). Banks include BAC, BK, COF, C, GS, JPM, MS, NTRS, PNC, STT, USB, WFC

 17

Details on regression statistics for drivers of total Commercial
Bank deposits

 Regression Statistics
 Dependent variable: Total commercial bank Dependent Variable: Deposits
 Intercept 238.731***
 deposits in the US (Deposits)
 Loans 0.996***
 FRB Reserves 0.986***
 Independent variables: Total loans and leases at 2 0.997
 commercial banks in the US (Loans) and total Freq. Quarterly
 Sample 1973Q1-2014Q4
 reserves had at the Federal Reserve (FRB *** p-value

Federal Reserve Bank of New York’s Survey of Primary Dealers:
LSAP Projections

 Net Purchases of U.S. Treasury securities ($bn)

 Dec Jan Feb Mar Apr May June 2021 2022 2022 2023 2023
 2020 2021 2021 2021 2021 2021 2021 H2 H1 H2 H1 H2

 25th Percentile 80 80 80 80 80 80 80 343 175 5 0 0

 Median 80 80 80 80 80 80 80 480 285 180 10 0

 75th Percentile 80 80 80 80 80 80 80 480 383 240 120 100

 Net Purchases of agency MBS ($bn)

 Dec Jan Feb Mar Apr May June 2021 2022 2022 2023 2023
 2020 2021 2021 2021 2021 2021 2021 H2 H1 H2 H1 H2

 25th Percentile 40 40 40 40 40 40 40 128 23 0 0 0

 Median 40 40 40 40 40 40 40 240 128 25 0 0

 75th Percentile 40 40 40 40 40 40 40 240 191 110 50 0

 Net Purchases of agency CMBS ($ millions)

 Dec Jan Feb Mar Apr May June 2021 2022 2022 2023 2023
 2020 2021 2021 2021 2021 2021 2021 H2 H1 H2 H1 H2

 25th Percentile 26 0 0 0 0 0 0 0 0 0 0 0

 Median 100 80 75 75 75 50 50 240 50 0 0 0

 75th Percentile 150 125 125 125 125 125 125 750 450 225 1 0

Sources: Federal Reserve Bank of New York

 19

US GSIBs: Cost of Deposits

 Rate Paid on Interest-bearing Deposits
 Dec-14 Dec-15 Dec-16 Dec-17 Dec-18 Dec-19 Sep-20
 BAC 0.13 0.11 0.14 0.32 0.67 0.61 0.08
 BK 0.03 0.01 -0.01 0.17 0.86 0.73 -0.05
 C 0.58 0.54 0.58 0.77 1.27 1.20 0.34
 GS 0.40 0.53 0.81 1.24 2.08 1.93 0.77
 JPM 0.18 0.13 0.16 0.35 0.73 0.67 0.07
 MS 0.17 0.07 0.09 0.26 1.00 0.94 0.30
 STT 0.10 0.10 0.04 0.22 0.41 0.32 -0.16
 WFC 0.13 0.11 0.18 0.39 0.77 0.85 0.13
 Median 0.15 0.11 0.15 0.34 0.82 0.79 0.11

 Rate Paid on Total Deposits
 Dec-14 Dec-15 Dec-16 Dec-17 Dec-18 Dec-19 Sep-20
 BAC 0.08 0.07 0.09 0.21 0.46 0.44 0.05
 BK 0.02 0.01 -0.01 0.12 0.63 0.58 -0.04
 C 0.46 0.42 0.44 0.61 1.04 1.01 0.29
 GS 0.39 0.51 0.81 1.20 2.02 1.87 0.76
 JPM 0.12 0.09 0.11 0.25 0.53 0.50 0.05
 MS - - 0.09 0.26 1.00 0.94 0.30
 STT 0.07 0.07 0.03 0.17 0.32 0.27 -0.13
 WFC 0.09 0.08 0.12 0.28 0.56 0.63 0.09
 Median 0.09 0.08 0.10 0.26 0.60 0.60 0.07

Sources: SNL and Bloomberg

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